UNIVERSITY OF FINANCE-MARKETING

3rd grade
ENGLISH FOR FINANCE AND BANKING

WHAT ARE
BONDS?
LECTURE: DANG THI MINH THANH
PRESENTER: GROUP 3
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TABLE OF CONTENTS
01 DEFINITION 02 TYPES OF BONDS

WHAT AFFECTS BOND

03
PRICES AND YIELDS?
 01

DEFINITION
 1. DEFINITION
- Bonds are loans to local & national
government and to large companies.

- The holder generally receive fixed

interest payment once or twice a year
and get their principal on maturity
date
02 TYPES OF BOND
 2. TYPES OF BOND
A debt obligation issued by a national
government to support government spending.
Government bond

A bond that is produce and sold by a company

Corporate bond

A share that give its owner special rights that can

be exchange for another type of share

Convertibles
 2. TYPES OF BOND
A type of bond that does not pay interest, but that
you buy for less than its face value, so that you
make a profit when it is paid back.
Zero-coupon bond

A bond with low credit rating, but paying high

interest rate.

Junk bond
Compare government bonds and corporate bonds
*Similar:
• Both are debt certificates, specifying the debt payment obligations of the issuer.

• Investors act as lenders, earning income based on recurring interest.

• Ability to buy resell, donate or transfer.

• Both have higher interest rates than saving rates.

• Minimum term is 1 year.

 Compare government bonds and corporate bonds
*Different: Government bonds Corporate bonds
Issuers The State (State Bank, Treasury, Private enterprise
Ministry of Finance..)

Release purpose Compensating for temporary budget Serve the goal of growing,
shortfalls, serving public purposes expanding business or solving
financial problems

Interest rate Usually kept at a fixed level Fixed or floating depending on the
issuer
Period Usually lasts for medium term (5-12 Usually short term (1-3 years)
years) or long term (12-30 years)
Capital preservation ability Very high, almost absolute Relative

Risk
Convertibility to shares
(Covertible bonds)
Extremely low risk, mainly influenced The risk is medium, mainly coming
by exchange rates from the debt payment ability of the
issuer
No Yes
03 WHAT AFFECTS
BOND PRICES
AND YIELDS?
3. WHAT AFFECTS BOND
PRICES AND YIELDS?

- Interest rates
- Inflation
3. WHAT AFFECTS BOND
PRICES AND YIELDS?
Yields:
• “Yields” refers to the earnings generated and realized on an investment
over a particular period of time.
• It’s expressed as a percentage based on the invested amount, current
market value, or face value of the security.
3. WHAT AFFECTS BOND
PRICES AND YIELDS?

EX: You own a bond paying 3% interest. When interest rates are low – say 1%
– your interest rate is higher than the going rate. This makes your bond
attractive to other investors. But if interest rates rise to 5%, your bond is less
attractive.
 1. Which bond is not pay interest?

A. A government bond B. A junk bond

C. A zero coupon bond D. A corporate bond

 2. What are bonds?

A. The holders of bonds generally receive non-fixed

interest payments

B. Bonds are loans to local and national government and to

small companies

C. Bonds are loans from an investor to borrower such as

large company or government
 3. Convertibles pay higher interest
rates than ordinary bonds

A. True B. False

Pay lower
 4. Which is long-term bonds issued by
the American government?

A. Treasury bonds B. Treasury notes

C. Floating-rate notes
 5. How do bond prices change?

A. The price of bonds varies directly proportional with

interest rates

B. The price of bonds varies inversely with interest rates

C. The price of bonds do not change.